• Returned 34.5% net to LPs with under 40% net common stocks and virtually no exposure to traditional credit.
• Key tenants – capital structure L/S fund with an event driven bias. Look at the capital structure as a spectrum of opportunities. Agnostics between all securities in the structure – looks for the best bang for the buck – asymmetry – more upside than downside. Will create them by combining different pieces.
• Concentrate in your best ideas.
• Construct a portfolio of thematically diverse but asymmetric payoffs.
• Thematic drivers – presenting a common equity idea
• In FY10 presented GM distressed bonds as post-reorg equity would be valuable – one of their best investments – an 8 bagger since 09.
• Look for off the beaten track securities
• In bankruptcy – many interesting securities are created – a different resolution stub with no relation to the common equity was created – a 3 bagger.
• Pitched Freddie/Fannie preferreds – likened them to railroad bonds – a 20 bagger for them and their largest event-driven position – very strong legal

• Common equity is today’s idea: TAG Oil (TAO.CN). E&P equity domiciled in Vancouver – operational assets on 2.8MM acres on conventional and unconventional assets are based in New Zealand.
• Most prolific driller in New Zealand. Goal is to be the biggest E&P producer.
• Company has a $140MM EV – 60MM in cash. $40MM in EBITDA.
• TAO equity looks like a distressed convertible bond. If assets appreciate bond is only worth par. If asset value detriotiates, bond falls in value. If assets go way up, converts participate in equity.
• Believe it is trading below its bond floor and multiple option components.
• Currently operates 26 wells in the Teranyaki basin in NZ. 1400 barrels a day or $40MM EBITDA. • Event component – low risk drilling opportunities. East coast opportunity – 13B barrels of shale oil available alone, similar to the Bakken. Pie in the sky option – basin with no drilling, but seismic studies show favorable prospects. Valuation scenario assumes no value.
• Valuation – base case of $6.0 – could double or more if other wells come online.
• Company has made good acquisitions. Bought a permit for $2MM – huge find. Stock spiked and the Company raised capital at the peak. High flow rates showed high depletion rate in FY13, in January 2013 – APA (drilling partner) drilled out.
• Believe Apache pulled out for internal issues. During the period when APA pulled out, Nat Gas was in a trough level – hence Apache needed to focus on unconventional plays and were fed up with NZ environmental delays. APA committed $100MM but paid $26MM to TAO – TAO lost a partner but received $15MM from APA no strings attached for APA pulling out.
• The Company has raised capital at astute times – never raised debt.
• Why is it training in deep value territory.
• Revenue and Book value have grown 4x and 13x respectively. Very asymmetric.
• Chief risks – commodity risk, the company is 85% oil. Environmental opposition. TAO has had a better chance without APA in obtaining permits.
• Limited operating history to the wells.
• Lack of oil and gas infrastructure. If they have a big find, might need a JV partner.
• CapEx – will spend $100MM plus through FY15 – but it is success based i.e. they can shut it off. • Any day now the Company will announce results for a basin. If it disappoints – worst case $2 - $2.5. If the play works out, $4 - $5 per share.
• Question – why are they not using debt? Being conservative – always self-funded themselves.
• Owns Fannie/Freddie Preferred – question is the common better? If the $210B is paid to treasury is assumed gone to a sink hole- the run down value of entities will fall in waterfall method – common stock will be wiped out – preferreds fully covered. Common does have upside. Preferreds could be a triple.
• Fairholme has been granted early discovery – will show how certain agencies planned their actions in regards to Fannie/Freddie was blatantly illegal.

• Returned 34.5% net to LPs with under 40% net common stocks and virtually no exposure to traditional credit.
• Key tenants – capital structure L/S fund with an event driven bias. Look at the capital structure as a spectrum of opportunities. Agnostics between all securities in the structure – looks for the best bang for the buck – asymmetry – more upside than downside. Will create them by combining different pieces.
• Concentrate in your best ideas.
• Construct a portfolio of thematically diverse but asymmetric payoffs.
• Thematic drivers – presenting a common equity idea
• In FY10 presented GM distressed bonds as post-reorg equity would be valuable – one of their best investments – an 8 bagger since 09.
• Look for off the beaten track securities
• In bankruptcy – many interesting securities are created – a different resolution stub with no relation to the common equity was created – a 3 bagger.
• Pitched Freddie/Fannie preferreds – likened them to railroad bonds – a 20 bagger for them and their largest event-driven position – very strong legal

• Common equity is today’s idea: TAG Oil (TAO.CN). E&P equity domiciled in Vancouver – operational assets on 2.8MM acres on conventional and unconventional assets are based in New Zealand.
• Most prolific driller in New Zealand. Goal is to be the biggest E&P producer.
• Company has a $140MM EV – 60MM in cash. $40MM in EBITDA.
• TAO equity looks like a distressed convertible bond. If assets appreciate bond is only worth par. If asset value detriotiates, bond falls in value. If assets go way up, converts participate in equity.
• Believe it is trading below its bond floor and multiple option components.
• Currently operates 26 wells in the Teranyaki basin in NZ. 1400 barrels a day or $40MM EBITDA. • Event component – low risk drilling opportunities. East coast opportunity – 13B barrels of shale oil available alone, similar to the Bakken. Pie in the sky option – basin with no drilling, but seismic studies show favorable prospects. Valuation scenario assumes no value.
• Valuation – base case of $6.0 – could double or more if other wells come online.
• Company has made good acquisitions. Bought a permit for $2MM – huge find. Stock spiked and the Company raised capital at the peak. High flow rates showed high depletion rate in FY13, in January 2013 – APA (drilling partner) drilled out.
• Believe Apache pulled out for internal issues. During the period when APA pulled out, Nat Gas was in a trough level – hence Apache needed to focus on unconventional plays and were fed up with NZ environmental delays. APA committed $100MM but paid $26MM to TAO – TAO lost a partner but received $15MM from APA no strings attached for APA pulling out.
• The Company has raised capital at astute times – never raised debt.
• Why is it training in deep value territory.
• Revenue and Book value have grown 4x and 13x respectively. Very asymmetric.
• Chief risks – commodity risk, the company is 85% oil. Environmental opposition. TAO has had a better chance without APA in obtaining permits.
• Limited operating history to the wells.
• Lack of oil and gas infrastructure. If they have a big find, might need a JV partner.
• CapEx – will spend $100MM plus through FY15 – but it is success based i.e. they can shut it off. • Any day now the Company will announce results for a basin. If it disappoints – worst case $2 - $2.5. If the play works out, $4 - $5 per share.
• Question – why are they not using debt? Being conservative – always self-funded themselves.
• Owns Fannie/Freddie Preferred – question is the common better? If the $210B is paid to treasury is assumed gone to a sink hole- the run down value of entities will fall in waterfall method – common stock will be wiped out – preferreds fully covered. Common does have upside. Preferreds could be a triple.
• Fairholme has been granted early discovery – will show how certain agencies planned their actions in regards to Fannie/Freddie was blatantly illegal.

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